FOREX TRADING STRATEGY MAY 22 - BIG NEWS

May 22, 2020
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China really stirs the pot today and their actions are affecting the market heavily. Stay updated and check out the latest events for today. Then, you can choose the right forex trading strategies.

Another protest

After China announced a drastic plan to curb dissent by adding a new national security law to Hong Kong's charter, opposition lawmakers warned that the current situation of the city as an international center was at risk. On Thursday, local media believed the rule would limit separatism, rebellion, foreign intervention and terrorism in the former British colony. Protesters called for democracy supporters to hold demonstrations across the city last night, but no protests on a large scale have yet to happen. 

Details will be made public on Friday, when Chinese Premier Li Keqiang is expected to make a speech at the opening of the Chinese People's Congress. The Hong Kong dollar futures contract prices for 3 and 12-month terms rose in New York trading, which showed further weakness for the currency, which had plunged the most in the previous 6 weeks. In another development, two U.S. senators are proposing legislation to punish Chinese agencies involved in the implementation of the newly proposed security law and penalize banks doing business with those agencies.

Heated market

Asian stocks seem ready for a cautious start on Friday as rising tensions between the United States and China add to concerns about the pace of economic recovery after the coronavirus pandemic. The dollar has stabilized and Treasury yields have dropped. The futures market in Japan and Hong Kong is down, while the Australian market is little changed. China responds to allegations from President Donald Trump, warning that it will protect national sovereignty, security and interests, and threaten countermeasures. This move caused a large trading fund of Hong Kong to decline nearly 4%. The S&P 500 has dropped 0.8%, with signs that Trump will turn China's tough stance into a major factor in his re-election. Energy, technology and utility stocks suffered the most. Meanwhile, crude oil recovered from the previous drop, and gold dropped.

About the outbreak

The census estimates that one third of U.S. adults (approximately 94 million) have delayed or avoided medical care during an outbreak. A report from a London university estimated that 4.1% of the US population is infected. In addition, the FDA released a list of 27 antibody tests that are not eligible for sale in the United States because of lack of precision in testing. Meanwhile, the US Treasury Secretary signaled the need for more stimulus when more than 2 million Americans applied for unemployment benefits last week. New York canceled classes during the summer. Starbucks is seeing a recovery in coffee shops and Facebook is now allowing some employees to work from home permanently. Worldwide, the number of coronavirus infections has reached more than 5 million and deaths have exceeded 329,000 cases.

A possible replacement

As Chinese companies face growing barriers to issuing shares on US exchanges, Hong Kong emerges as their most likely replacement. This could further destabilize the already volatile interest rates in the city. Large-scale listings like Alibaba's IPO late last year tend to run out of liquidity when investors spend cash to buy stocks. It raises Hibor interest rates, affects the cost of everything, from mortgages to corporate loans, and can last long after large stock sales. 

Higher interest rates also tend to support Hong Kong's pegged currency, which is technically trading near the strongest level against the greenback in its capacity. Margin financing activities around large listings have further increased liquidity in the Hong Kong banking system. Interbank interest rates a month reached the highest level since 2008 in the months when Alibaba issued shares. Xiaomi's offering in 2018 has also brought Hibor interest rates to high levels for nearly a decade.

A more direct approach

One of Australia's largest asset managers has seen an increased opportunity for direct lending as companies affected by the Covid-19 crisis are seeking access to capital. IFM investors, managing $156 billion ($102 billion), said the post-pandemic economic recovery will take years and companies are struggling (from care centers). children to real estate developers, from commercial real estate owners and retailers) all need funding. Hiran Wanigasekera, executive director of debt investment at Melbourne-based IFM, said: "You can still run very long-term businesses, but they need some temporary support at this stage. We are looking at how we can support and bridge the funding gap they need."